DBS guided for 2019 mid-single digit point NIM improvement.

• DBS' 2Q19 NIM of 1.91% was 3bps wider q-o-q and 6bps wider y-o-y. On the assumption of a FFR cut of 25bps at end-July,
• DBS guided for 3Q19 NIM to be narrower by 1bp q-o-q, with a further 1-2bps q-o-q narrowing in 4Q19. However, given 1H19 NIM strength, 2019 NIM is guided to be wider than 2018’s 1.85%.
• We forecast 2019 and 2020 NIM at 1.88% & 1.86% respectively.

Mid-single digit 2019 loan growth outlook by management

• DBS guided for some pickup in mortgages in 2H19, following the 2% HoH contraction for 1H19. This is following stronger 2Q19 housing loan bookings, which should translate to drawdown at a later date.

Wealth management shows potential

• DBS' 1H19 wealth management income rose 17% y-o-y, on the back of AUM rising 8% y-o-y to SGD234bn.
• We remain bullish on wealth management contributing to income growth, particularly with the expected FFR cuts creating more investment opportunities for the high net worth individuals.

CIR fell

• Sequential strength in total income, accompanied by a milder q-o-q growth in expenses, led to 2Q19 CIR falling 0.5ppts q-o-q to 41.7%. Management guided for 2019 CIR at 43%.

Dividend yield to support share price

• We forecast 2019 dividend of SGD1.20/share – DBS declared 2Q19 interim one-tier tax-exempt dividend of SGD0.30/share. The 4.5% dividend yield should help to support DBS share price.

Our Target Price based on 1.37x 2020F P/BV

• 2Q19 ROE was 13.4% – higher than 2Q18's 11.8%. Our DBS valuation is based on long-term ROE assumption of 13.2%. This yields a target price-to-2020F book of 1.37x, from which we derive our Target Price of SGD28.30.